The Hindu Business Line : `Coal India's profits for 2006-07 may dip'

Kolkata March 14 Even as the state-owned Coal India Ltd (CIL) has paid the first dividend of Rs 800 crore for the accounting year of 2006-07 to the Union Government and is contemplating to pay another round of dividend of about Rs 700 crore for the current fiscal, its overall profitability during the year ending March 2007 is likely to drop substantially as compared to the profit earned in 2005-06. This is feared by a top level official of CIL.

In spite of higher growth of production and dispatches from its subsidiaries, CIL's profit may be pegged at about Rs 7,000 crore in 2006-07 as compared to about Rs 8,676 crore in 2005-06. The official has attributed two major factors for the fall in profitability. The first one was the increased cost of all materials and machinery and equipment it used and the other factor was the resultant impact of the ban by the Supreme Court on implementing the coal marketing mechanism through "e-auction" route. Whereas CIL was not allowed to revise prices by the Union Coal Ministry in the last two years with the Centre's objective of checking inflation.

In fact, the marketing of high grade coal through e - auction has helped CIL neutralise the cost escalation of raw materials and machinery considerably. But the benefit was availed by it till the Supreme Court imposed a ban on marketing coal through e-auction. The order was effective from about four months ago. In its order, the Supreme Court has directed the Union Government to prepare a new coal marketing for CIL, the process of which is still on. However, the Supreme Court ban has impacted very badly to CIL's profitability.

Meanwhile, the Planning Commission has entrusted CIL the target of achieving about 520 million tonnes (mt) of coal during the Eleventh Plan (2007-2012) as against the targeted production of 360 mt in 2006-07. Of the Eleventh Plan's production target, the washed coal production target would be about 163 mt as against the country's present coal washing capacity of about 55 mt. This means that about 100 mt of coal washing capacity has to be created to make usable the high ash content domestic coal.

Though this would be a daunting task, the executive said that CIL was set to begin the process seriously from the 2007-08 fiscal. It has plans to establish the additional washing capacity through Build and Operate basis. Initial cost of setting up a washery would be borne by CIL, while the operation and maintenance costs would be met by private entrepreneurs.